Sunday , 20 August 2017


Silver: The Party Isn’t Over Yet

Investing is often a study of inconsistencies and contradictions. If it weren’t, the markets would be a simple game and there would no back and forth between buyers and sellers, greed and fear and technical analysts, fundamentalists and momentum players. Our experience with silver since the end of last year illustrates this [but] we [still] think it makes sense to get exposure to the metal. [Let us explain.] Words: 820

So says Dr. Stephen Leeb (www.leeb.com) in edited excerpts from an article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited ([ ]), abridged (…) and reformatted (sub-titles and bold emphases) below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Leeb goes on to say, in part:

In particular, [silver] shows the contradictions between two time-tested stratagems:

  1. the theory that an investor should let winners “run”—in other words, don’t sell something if it is performing well, don’t fix it if it isn’t broken, etc.
  2. the equally oft-proven adage that while bears make money and bulls make money, pigs often get killed [which is] a fancier way of saying don’t get greedy and take profits when you can.

In our experience, the longer one has been in the markets—or long enough to understand how hard it is to consistently make money—the more one tends to err on the side of the latter stratagem versus the former…

Our Long-Term Thesis for Silver

We’re content with the long-term investment thesis for the white metal:

  •  currently roughly 1.5 ounces of silver is consumed for every ounce that is mined. The twin characteristics of being both a precious and an industrial metal  means that silver, unlike most commodities, has greater attraction than most
  • the ratio between silver and gold has reached historical lows under 40, meaning it takes less than 40 ounces of silver to equal one ounce of gold. To get back to recent historical average levels of around 60, either gold has to fall (unlikely, given the fiscal and monetary situation in the world’s three most important currencies) or silver has to rise…There is no assurance that the ratio must revert; looking back several centuries, including when the American currency was first constructed under Alexander Hamilton, the actual historical norm when gold was used as money is actually in the mid- to high teens. Note, too, that at the previous high for silver back in January 1980, at which point silver fetched over $54 per ounce when adjusted for inflation etc., the ratio was 17.4—interestingly close to Hamilton’s original calculation.

Silver Investment Options

The only real competition against SLV is a smaller fund from ETF Securities, the ETFS Physical Silver Shares Trust (SIVR). Newer and smaller than SLV by a significant margin, SIVR has roughly $700 million in assets, compared to over $14 billion in SLV, and like SLV, stores its silver in vaults under London’s streets. This smaller fund is decently liquid, trading an average of 325,000 shares per day compared to 19 million in SLV, although this lower liquidity results in wider trading spreads. While SIVR carries an expense ratio of only 0.3% versus 0.5% for SLV and the returns for the two funds are almost identical, both would suit our purpose…The more adventuresome among you who are not put off by SIVR’s greater volatility and want to pay less in expense fees can easily swap one for the other. In either case, we suggest keeping a close eye on the position…

Potential Risks in Silver

Silver, in spite of its recent trajectory, could go higher still. This is not to say there is no risk in a renewed silver trade…While silver definitely rises faster than gold in a precious-metals bull market (as evidenced by recent events), it also falls faster when things turn around. From the 1980 ratio low, note that merely a bit more than a decade later, in February 1991, the same ratio was 101.8 and silver traded for $3.50 per ounce. Since then, the ratio has been in a more-or-less continuous downtrend, and it is clearly within the imagination that it is heading back to the mid-teens. After all, it is the ratio at which these two metals traded for centuries prior to the arrival of fiat, or paper, currencies…

Conclusion

Any new silver position—and we would advocate a physical-silver ETF instead of an equity- or futures -focused one in order to track the metal most closely—should be a small portion of your speculative budget and not a core holding. Nonetheless, with a decently tight stop-loss price and an understanding that any new position in silver must be watched closely, we think it makes sense to get exposure to the metal…

*http://www.leeb.com/content/silver%E2%80%99s-surge-party-isn%E2%80%99t-over-yet

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